Market Access

guarantee system

GUARANTEES
BANK GUARANTEES
NON-INTEREST-BEARING DEPOSIT

EXPOSURE

EXPOSURE
EXPOSURE IN THE MGP AND MI OR NETTING MARKETS
EXPOSURE IN THE MPEG
EXPOSURE IN THE MTE

MANAGEMENT OF DEFAULT

MANAGEMENT OF DEFAULT

GUARANTEES

In order to operate on the energy markets or on the PCE, Market Participants will submit – alternatively or cumulatively - financial guarantees as:

1. first-demand bank guarantee issued by banks registered as provided for in Article 13 of Legislative Decree no. 385 of 1 September 1993, and which have a long-term rating awarded by at least one of the following rating agencies: Standard & Poor's Ratings Services, Moody's Investor Service, Fitch and DBRS. The rating must be at least BBB- of the Standard & Poor’s or Fitch scales or Baa3 of the Moody’s Investor Service scale or BBB low of the DBRS scale;

2. non-interest-bearing deposit to be made to the bank account held by GME with the bank in charge its treasury services.

PA Participants can provide guarantees only as non-interest-bearing deposits to be made to the bank account held by GME with the bank in charge of its treasury services.

In the Day-ahead Market (MGP), Intraday Market (MI-A/MI-XBID), and in the Spot Gas Market (MPGAS), use is made of  the integrated guarantee management system (or "netting") characterised by an overall net exposure covered by a single guarantee amount, without any segregation among the markets concerned.

For each type of guarantee that is posted, the Market Participant can decide to divide the related amount on the basis of the operations to be carried out in the different markets managed by GME, or it may post a guarantee for the netting markets and for the other markets/platforms.
Indeed, according to the terms and conditions defined in Technical Rule no. 04 ME, the Market Participant can allocate part of the guarantee posted to cover the exposures that may arise both in the netting markets and the MPEG, MTE, MTGAS and/or PCE, by submitting the guarantee allocation form that it is available here.

With regard to operations in the MI-XBID, the Market Participant, through the Local Trading System (LTS) platform, must reserve a guarantee amount from the portion intended for the netting markets for a specific flow date. This reserved amount can be modified at any time; however, in case of a decrease, the reserved amount must not be committed.

Depending on the allocation chosen, the guarantees provided by the Market Participant are reduced by an amount defined as maintenance margin, set at 3% of the total amount of the guarantees for the MGP/MI, MPGAS, MPEG, and PCE, and at 10% for the MTE and MTGAS.

Once a bank guarantee has been posted its amount and/or period of validity can be updated by submitting a specific form, or its allocation can be changed.

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BANK GUARANTEES

The bank guarantee and the related updating letters must be submitted or sent (where possible by registered letter with return receipt or courier) only to the bank in charge of GME's treasury services. Upon receipt, the bank will place a stamp on the document with the date of receipt, which will become the "date of submission".

The bank guarantee must be sent to the address of the bank in charge of GME's treasury services:

Banca Popolare di Sondrio Società per Azioni
Viale Cesare Pavese, 336 - 00144 - Roma
To the attn.: Ufficio Crediti (Credits Dept.)

For the acceptance of the bank guarantee, the issuing bank must send a swift 799 message to POSOIT22ROM specifying "138-GME" in the field 21 and the following text in the field 79 (free text): “Si conferma che la fideiussione (o lettera di aggiornamento o lettera di patronage) n. ... di € ... nell’interesse dell’operatore .... è stata da noi emessa in data .... e le firme ivi apposte hanno il potere di impegnare il nostro Istituto per siffatte garanzie” (Courtesy translation: We confirm that we have issued the bank guarantee (or updating letter or letter of patronage) no. ...... of € …. in favour of the Market Participant on...... and that the signatures affixed thereto commit our bank to fulfil the obligations arising from the aforesaid bank guarantee).

The Market Participant may at any time request the return of the bank guarantee according to the terms and conditions established in Technical Rule no. 04 ME.

For the purpose of the submission of guarantees and related updating letters, the documents must be drawn up according to the templates attached to the ME Rules and available in the appropriate "forms" section, otherwise the documents cannot be accepted.
The bank guarantee forms to be used for guarantee submission to cover the payables related to the different markets in which each Market Participant intends to operate, as well as the updating forms for the bank guarantee amounts are:

1. Integrated Bank Guarantee without expiration form for participation in the netting markets (MGP/MI-MPGAS), MPEG, MTE, MTGAS and PCE), and related form of updating letter for the amounts of the bank guarantee;
2. Integrated Bank Guarantee with expiration form for participation in the netting markets (MGP/MI, MPGAS), MPEG, PCE and related form of updating letter for the amounts and/or validity period of the bank guarantee.

According to the terms and conditions defined in Technical Rule no. 04 ME, the Market Participant that has submitted a bank guarantee to GME, compliant with the templates prepared by the latter, can determine the allocation of such guarantee, by submitting to GME the guarantee allocation form available here. Without an explicit allocation requested by the Market Participant, the entire bank guarantee provided will be used to cover exposure in the netting markets.

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NON-INTEREST-BEARING DEPOSIT

The details of the bank account, to which the bank transfer must be made, are:
Banca Popolare di Sondrio
IBAN IT97 H056 9603 2110 0000 7220 X46
SWIFT CODE POSOIT22

The reason for payment shall be as follows: “deposito infruttifero con facoltà per il GME di poterne disporre” (courtesy translation: Non-interest bearing deposit with GME's option to use it).
The Market Participant may at any time request the return and/or the allocation of the non-interest-bearing deposit according to the terms and conditions established in Technical Rule no. 04 ME.

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EXPOSURE

On the ME, GME defines the exposure of each Market Participant based on the risk of potential non-fulfilment of obligations in each market and requires that the same is covered by adequate guarantees.
According to the operations carried out in each market, separate exposures will therefore be calculated, each one for a single trading day referring to a single day of flow and subsequently aggregated by payment date (settlement).
Therefore, during the proposal stage and in the following stages until settlement, GME carries out financial adequacy checks aimed at verifying that the guarantee given is adequate with respect to the single exposure held (see Technical Rule no. 07 ME).

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EXPOSURE IN THE MGP AND MI OR IN NETTING MARKETS

In principle, a purchase on the MGP and MI generates an exposure equal to its entire value, while a sale does not generate exposure, unless it is at a negative price, or unless it results otherwise from the combination of the offer price with the compensatory component in the MGP, or with the extent of the non-arbitrage fee in the case of MI sessions with regards to consuming units.
During adequacy checks, after the end of the market sitting of the MGP and MI-A and in order to accept bids/offers for the determination of auction results, the bids/offers submitted generate exposure in the worst-case scenario assuming that the bids/offers generating such scenario are accepted, i.e. considering that only demand bids at a positive price and only supply offers at a negative price are accepted.
During the adequacy verification phase, each proposal entered into an MI-XBID order book generates exposure based on the entire value of demand bids at a positive price, or supply offers at a negative price.

After the determination of results and after each matching on the MI-XBID until the settlement date, the net position is determined. This position will result from the algebraic sum of buy positions and sell positions. Thus, net buy positions and net sell positions at a negative price will give rise, for each flow day, to an exposure equal to its entire value, valued at the bid/offer price awarded, whereas net sell positions at a positive price on each flow day will determine the possibility of offsetting the debit exposures related to the same settlement date.
Moreover, in determining exposure on the MGP and MI, it is necessary to take into account also the compensatory component arising in the MGP and the non-arbitrage fee arising in the MI.
If the Market Participant is also admitted to the MGAS, it will have a single overall net position arising from the exposures or credit positions acquired in the MGP/MI of the ME and in the MPGAS, respectively.

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EXPOSURE IN THE MPEG

In principle, the purchase in the MPEG of a product at a differential price (positive price), or potentially a sale at a negative price generate exposure equal to 100% of the value given by the algebraic sum of the offer price and the PUN Index GME or, if it is not yet known, of its estimate (MPEG check price), while a sale does not generate exposure; in fact, under certain conditions, it can give rise to an offset.

At the bidding stage, the exposure is determined by considering the most adverse potential combination of all matched bids/offers with the net position already traded. At this stage, the exposure is valued by considering the price given by the algebraic sum of the price quoted in the bid/offer, i.e. its differential with respect to the PUN Index GME, and the related check price determined by GME.
After matching, each position generates absorption of the guarantee equal to its entire value in case of a debit, valued at the matched differential price, increased by the related check price, whereas it generates no exposure in case of a credit.

After knowing the value of the reference PUN Index GME, the exposure value is updated in order to consider the entire value of the debit and credit position, valued at the matched price, increased by the PUN Index GME.

In conclusion it should be noted that net buy positions give rise to guarantee absorption for each flow day, while net sell positions, once the PUN Index GME is known, determine the possibility of offsetting the debit exposures that have the same settlement date.

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EXPOSURE IN THE MTE

Bids/offers submitted into the MTE for products with baseload and/or peakload profiles determine an exposure that is equal to the mark-to-market between the reference check price for the contract covered by the bid/offer and the price quoted in the proposal (see Technical Rule no. 07 ME).
After matching, the net positions on contracts still under trading generate exposure as a function of their valuing at the respective check prices, determined by GME, and of the risk parameter α, thus providing any offset due to the recognition of the correlation between different profiles of the same contract through the risk parameter ß, and of the correlation between the different delivery periods through the risk parameter γ.

Upon registration of the net delivery position in the MTE, the net buy position generates an exposure equal to entire value of the position, valued at the average buying price.

Subsequently, for contracts already delivered but not yet settled, the net buy positions generate an exposure equal to the total value of the position, valued at the trading price, while the net sell positions generate such a credit as to offset debit exposures on the same settlement dates.

The risk parameters used for checking the financial adequacy of the available amount of the guarantee are as follows:

1. the parameter α is associated with each product according to the following table:
   
2. the parameter ß is equal to 70%;
3. the parameter γ is equal to 70%.

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MANAGEMENT OF DEFAULTS

The guarantee system adopted in the ME consists of several levels of supervision:

1. financial guarantees in the form of first-demand bank guarantees or non-interest-bearing deposit. In order to submit adequate bids/asks, the Participant may post, alternatively or cumulatively, a guarantee in the form of a first-demand bank guarantee meeting the requirements indicated in the Integrated Text of the Electricity Market Rules, or in the form of a non-interest-bearing deposit;
2. guarantee fund, established at the Energy and Environmental Services Fund and managed by it pursuant to ARERA’s Resolution 502/2016/R/GAS as subsequently amended by ARERA’s Resolution 376/2019/R/COM. The Guarantee Fund is used by GME to cover the defaults of all the Participants or the bank issuing the bank guarantee, if the financial guarantees issued are insufficient or the issuing bank fails to comply.
   This Guarantee Fund is also used for the default of Participants by right of ME and MGAS.
3. own funds of GME for a maximum yearly amount of 2.5 million EUR. This amount is intended cumulatively, both in the electricity market and in the natural gas market, to cover the debts of defaulting Participants, with the exception of Participants by right, or the failure to fulfil obligations by the issuing banks;
4. Risk pooling mechanism defined by ARERA as established in its Decision of 28 September 2009 - ARG/elt 138/09 as supplemented by Decision of 2 October 2009 - 2009 - ARG/elt 142/09.

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